Depends on what you mean by "regulation".
There's plenty of exchanges that seek to comply with the law. There have been plenty, there will continue to be plenty.
The proposal here seems to be an exchange operated by the government itself, which goes a step further. I'd be happy about it, if only because then it'd be difficult for the UK to do a 180 and outlaw/heavily restrict something that's actively making them money.
I think the proposal is to have an exchange the government regulates. So less silk road traffic but more grannies looking for alternatives to Post Office savings accounts. The big advantage for Bitcoin is that the risk of a bank closing the exchange would be gone and the ease of buying Bitcoins would be a great benefit.
